Stocks give up gains

Stocks continued to give up gains this week as investors exited counters with high valuation metrics and searched for those with undemanding ones.

By Chris Muronzi

Shares this week opened on the downward, with the mainstream industrial index shedding 0,31% on Monday to close at 327,41 points weighed down by losses in Axia down 18,83% to close at $0,16 and Econet down 0,62% to close at $0,98.

On Tuesday, the mainstream industrial index lost a further 1,36% to close at 322,96 points after a 10,5% decline in Econet to close at $0,87 and NicozDiamond was down 17,3% to close at $0,03.

Analysts see this as a continuation of a market correction initially triggered by a military intervention last month which led to the ouster of former president Robert Mugabe.

A correction generally refers to a temporary price decline that interrupts an uptrend in the market.

In the week to Friday last week, the industrial index was down 2,24% to close at 328,44 points.

In the prior week, the market plunged 10,16% as investors exited positions after a bull run triggered by inflation fears. A look at valuation metrics to November 30 shows that Zimbabwe Stock Exchange (ZSE) counters were trading at premiums to their book values, with some stocks boasting of price-earnings (P/E) ratios as high as 400.

For instance, Econet, an investors’ favourite on the ZSE, had a price-to-book (P/B) ratio of 5,45 and a P/E ratio of 32,43 while Delta was trading at a P/B premium of five and a P/E of 34,44.

BAT had a P/B premium of 61,24 and a P/E of 82,11.

General Beltings has a P/B ratio of 2,10 and a P/E of 459,77. Essentially, this means an investor needs to invest US$459,77 for a General Beltings share and a dollar in earnings.

Rio Zim is also on the high with a P/B ratio of 31,25 and a P/E of 25,16.

A total 15 counters out of 60 are trading at discounts to the book values. On a quarter-to-date basis, the industrial index was down 22,78%, while on a year-to-date basis, stocks were up by 123%. As at September 30, the market was up 265% on a year-to-date basis.

The market was valued at US$9,3 billion on Wednesday from a peak of US$17 billion as a October 31.